Some practical policies

Developing country cities will continue to grow rapidly and, as a result, so will the demand for public services. To meet this demand, urban policymakers will need to increase and diversify potential sources of revenue in a well-administered and transparent manner.

Short-term reforms

While changing national legislation may be an option, this will need to be considered in parallel to reforms that can be carried out in the short-term by local authorities. The authorities can identify the best possible revenue sources, both in terms of their potential tax take and the feasibility of their implementation.

Examples of such reforms include:

  • Updating and digitising databases with relevant information on the tax base.
  • Establishing a unique registry for taxable land and property.
  • Improving tax collection processes for both the authorities and the taxpayers through modernisation, such as online payment systems and help centres.
  • Investing upfront in technology that can streamline revenue administration processes.

Medium-term reforms

In all countries, but particularly those that are undergoing decentralisation processes, it is beneficial for national authorities to endow their local counterparts with the necessary capabilities to manage their own revenues. This increases local ownership of the process and can potentially result in better public service provision. Migration and population growth in cities mean that more resources will need to be managed locally, and the ability of municipal or local authorities to raise their own revenues will be increasingly important.

As local and municipal authorities strive to rely less on central government transfers, they will be able to work towards having land and/or property taxes become their primary source of revenue.

It is advisable to implement reforms in this area in a sequenced, gradual, and transparent manner that is commensurate with the ability of the tax base to pay these taxes. Although political opposition in this respect is inevitable, it is still beneficial to pursue these reforms. Opposition can be mitigated through a transparent and well-communicated reform process.

Woman in Kigali, Rwanda. Photo: Getty | Phil Moore